Namco Filing Names Management Issues

A large retailer of pools, supplies and accessories has filed for Chapter 11 bankruptcy protection.

Manchester, Conn.-based Namco, LLC, filed the petition on March 24 in Delaware.

The firm cited poor weather, internal management issues and economic factors for its inability to pay its debts, which total approximately $32.7 million. These also were listed as reasons that led to a net sales decline from $92.2 million to $82.8 million between 2011 and 2012.

However, some said there’s more to the story, even suggesting the company’s outdated business model is partly to blame.

Founded in 1962, Namco operated 37 stores in 10 states throughout the Northeast and Mid-Atlantic regions at the time of the filing. Additionally, the company owns a chemical repackaging facility in Manchester. It sells the product at its retail locations, as well as to distributors. Namco employs approximately 288 people.

One of the firm’s main product categories is aboveground pools, and while Namco sells them, it does not offer installation. Instead, customers must hire subcontractors. Some experts believe this can significantly impact sales, especially when brick and mortars need to differentiate themselves from the Internet.

“You have to do more than what others can do online. Otherwise, you’re just playing the numbers game,” said Richard Ghidella, co-owner of Sun Pools in Green Brook, N.J. “[Namco] didn’t shift with the times.”

Sun Pools has been in business for decades, but didn’t provide installation on abovegrounds until a few years ago, when Ghidella recognized the need to offer customers more reasons to shop at his store.

“That was the mode of business operation in our area. The only time you would write a pool is if it were inground,” he said. It’s unclear how much this particular dynamic impacted Namco, but what is known is that the firm had to cope with other issues.

Between 2006 and 2008, Namco struggled with implementation of a new point-of-sale software under an overhauled management team. As detailed in the petition, Namco appointed a new CEO in 2005 shortly after acquiring pool supply retailer Branch Brook Co. for approximately $35 million. The deal added six locations to its roster and expanded its geographic footprint into the Mid-Atlantic region.

In 2006, the firm launched a corporate reorganization that included replacing nearly 20 store managers with “highly compensated middle managers who were deemed to have stronger operational skills,” stated the documents. A number of higher-level executives also were hired. This caused operating expenses to increase dramatically.

Under their direction, the company’s POS system was “unsuccessfully implemented” in March 2007, creating major disruption to business and impacting customer relationships, the documents continued. That same year, Mark Scott was promoted to CEO, a position he maintains today.

By 2008, Namco resolved the issues with its POS system and began “focusing on improving margins and reducing unnecessary operating expenses,” according to court papers. During the next three years, the firm cut $30.7 million and increased its gross margin from 41 to 51.3 percent. But in that same period, top line sales decreased 9.4 percent.

While Ghidella isn’t convinced that problems concerning the software in 2007 could be a cause of Namco’s more recent financial woes, other industry retailers believe it is possible to feel the effects years later.

Three years ago, Scottsdale, Ariz.-based A&M Corson’s AquaValue switched to a new POS system for its six locations and though it ultimately is a better program, some issues from the transition linger.

“Inventory is the largest asset that any retailer has, and the previous software had so many glitches that it was a huge downfall,” said company coordinator Cerah Gray, who oversaw six months of research before deciding on the software. “There are certain things within our system we still feel the effects of that the other software created. [Namco] could theoretically be playing catch-up.”

Though not privy to the specifics of Namco’s situation, Manuel Perez de la Mesa said retailers and distributors — no matter the size or structure — can learn from the example.

“Any kind of management change involves risk,” said the president/CEO of distributor giant PoolCorp in Covington, La. “Changing core software and store managers is significant. It may have been necessary, but the pace that you make those changes really compels you to be more deliberate.”

For instance, rather than replacing up to 20 store managers at once, make adjustments in increments, removing five or seven of the weaker performers in year one and continue to improve the mix over time, he suggested. Additionally, hiring from within after the candidates understand the company’s culture strengthens the overall management team, Perez de la Mesa added.

“It would be fool’s gold to hire from another retailer or organization. It’s a huge mistake many companies make,” he said.

Managing growth so it does not overtax the organization or its finances also is crucial.

“Growth comes at a cost, and you have to be very cognizant of the ability to manage and financially weather that growth,” he said.

To reduce operating costs, Namco temporarily closed several stores in January and operated 21 fewer than it had the year prior, stated court documents. Reports of these closures — as well as random openings — surfaced throughout the region, and have raised eyebrows for some, including Ghidella.

“Last year they opened a store in East Brunswick, [N.J.], for approximately two months and then shut it down in August before the season even ended,” Ghidella said. “It was very strange.”

In December 2003, Namco was acquired by Whitney Equity Holdings Corp., which owns 50 percent of the equity. GarMark Partners II became a second secured debt partner in 2007 and is a 50 percent equity holder.

Officials from Namco as well as the private equity firms declined to comment for this story.